Strange DNS problem

[Tamadite]

Firmware: Oleg 1.9.2.7-10

1) I can't resolve WAN names from hosts on LAN
2) I can resolve/ping WAN names from router
3) I can resolve the name of the router from host on LAN
4) I can ping WAN IP addresses from LAN and router
5) dnsmasq is active
6) port 53 is open/available
7) If I kill dnsmasq it take a couple of seconds (timeout) before I get DNS error. With dnsmasq active it takes no more than 1 second to give the same message (name could not be resolved)
8) no error/warning messages on syslog or dnsmasq.log
9) if I boot from router (not from external usb where I have the problem) everything works. iptables looks identical on both cases as well as dnsmasq.conf
10) hosts on LAN get proper DNS configuration as 192.168.1.1

I'm out of ideas. Any hint about what to check?

[Tamadite]

I found a "segmentation fault" message when running "ipkg list" or "ipkg install". I reinstalled ipkg (just ipkg, not the packages) and I got everything to work again.